In times of low interest rates, savers face new challenges. Terms such as penalty interest, negative interest and custodial fees keep popping up in the process. But what do these terms actually mean and what impact do they have on savers’ assets??
A penalty interest rate is a fee that banks charge when they have to park their customers’ cash money with the central bank. This penalty fee is designed to encourage banks to put money back into circulation instead of just leaving it in their accounts. A negative interest rate, on the other hand, means that banks charge their customers for storing their money with them.
Custodial fee is another form of fee that banks can charge. Here, they charge money for keeping their customers’ money in custody.
But what do penalty interest rates, negative interest rates and custodial fees have to do with inflation anyway? Inflation describes the general increase in prices on the market. When inflation increases, money loses purchasing power and is worth less than before. This means that savers need more money to cover their living expenses.
Understand the penalty interest rate, negative interest rate, and custody fee
The penalty interest or negative interest is a fee that banks charge to customers who keep money in their accounts. This fee is charged when the interest rate on deposits falls below zero. This is a result of the current low interest rate policy of central banks, which leads to banks charging a fee to cover the cost of managing deposits. However, this can also cause customers to withdraw their money from the bank and invest it in other types of investments, such as stocks.